Analysts weary of PSA – Dongfeng deal

With a failed alliance to America’s GM, PSA’s future seems to hinge on the deal it strives to make with Dongfeng and the French government – but the proposed structure makes analysts cautious.

Because under the proposed capital increase plan the Peugeot family, Dongfeng and the French state would have around the same share stake, analysts caution that PSa could trade a problem for another – gaining cash and a structure that would impair rapid decision making.

“We see a risk of a Pyrrhic victory,” Max Warburton, an analyst with Bernstein Research, said in an open letter to Thierry Peugeot. “The Dongfeng deal will close out strategic options,” and the involvement of France and the state-backed Chinese company “is hardly likely to lead to improved efficiency, competitiveness and growth.”

Chairman Thierry Peugeot was a known advocate to the independence of the company, but his opinion was overruled and the family seemed keen on going forward with the deal.

“I still don’t understand why they’re doing this deal,” said Florent Couvreur, an analyst with CM-CIC Securities in Paris. “The three main shareholders will have completely divergent concerns, with a high risk of conflict.”

According to analysts, there are other ways to increase the cash flow at the automaker, besides the French/Dongfeng deal – like selling the 51.7 % stake it holds in auto-parts maker Faurecia SA, bringing roughly 1.9 billion euros or selling part of its financing unit – Banque PSA Finance SA.